CARES Act Tax Incentives: What You Need to Know

January 06, 2021 | Paul Morf & Alexandria Ransom

Learn more about tax incentives from the CARES Act that could benefit you.

Two provisions of the CARES Act for giving to charity have been extended into the new year. Read on for more details about these extensions from Paul Morf and Alexandria Ransom from Simmons Perrine Moyer Bergman, PLC. Paul is a current UWECI board member.

The Coronavirus Aid, Relief, and Economic Security (CARES) Act was primarily aimed at providing economic relief to businesses and families. However, it also extended some incentives to reward taxpayers who make cash gifts to public charities, such asPaul_Morf United Way.

First, in both 2020 and 2021, each individual taxpayer may take a $300 deduction for cash donations to a public charity such as United Way ($600 for married couples filing jointly). This benefit is extended to taxpayers even if they do not itemize on their tax returns (i.e., if the taxpayer takes the standard deduction). So make sure you give your tax preparer information about your 2020 charitable gifts, and make sure you give United Way of East Central Iowa— or another public charity— at least $300 (or at least $600 if you areAlexandria_Ransom married) in 2021, to avoid wasting this opportunity. This benefit does not exist for gifts to private foundations, supporting organizations, or donor advised funds.

Second, for taxpayers who do elect to itemize their deductions, the charitable deduction for cash contributions to public charities (and not donor-advised funds) is no longer limited to 60% of the taxpayer's adjusted gross income. Instead, a taxpayer may apply the charitable deduction against all (100%) of his or her adjusted gross income. That is a big deal for individuals, especially those with a “large income” year, perhaps because they are selling a business or receiving stock grants or other non-qualified compensation.

Third, for C corporations making cash donations to public charities (and not donor-advised funds), the charitable deduction is increased to 25% of the corporate taxpayer's taxable income (instead of 10%). This makes it more efficient for many taxpayers to make charitable donations through their businesses, and encourages businesses to reinvest in their communities through philanthropy.

So in short- be sure to let your tax preparer know if you made any charitable gifts in 2020, even if you plan to take the standard deduction. You could still benefit. And, finally, consider donating (individually, or through your business) to United Way in 2021- especially as the tax benefits could potentially be reduced in 2022.